The rise in e-commerce platforms on the digital marketplace has led to many successful peer-to-peer businesses operating on an apparent trust basis between provider and user. However, as the platforms expand and become distanced from their initial incarnation, the process of maintaining transparency has in many cases been disrupted. In this article, we examine the crucial role of transparency and effective conflict management in sustaining the success of two-sided markets such as Airbnb. As these platforms continue to evolve, addressing these challenges becomes paramount for their continued growth and viability.
In today’s digital age, e-commerce platforms like Amazon, Uber and Airbnb have risen as influential two-sided markets, connecting buyers and sellers in innovative ways. These platforms have revolutionized the way we transact, offering convenience, accessibility and speed. By nature, they have been devised to cut out the intermediary and promote a direct channel between provider and customer - to great effect.
However, with this convenience comes the challenge of maintaining transparency and resolving conflicts effectively. One of the primary difficulties arises from the sheer scale and diversity of users and transactions facilitated by these platforms. For Airbnb, with millions of users, hosts and properties listed across multiple countries and new markets featuring diverse offerings, it can be hard to manage the regulatory and operational differences - especially in recent times where individual hosts are being surpassed by professional agencies and host lobby groups.
These factors have increasingly led to an asymmetry of information between platform operators and users, and hence, have exacerbated issues related to transparency and trust. Users may feel disempowered or wary of platform policies and decision-making processes, particularly if they perceive a lack of coherence and accountability in terms of information sharing.
Reducing transaction costs
Two-sided markets excel in minimizing transaction costs, offering users streamlined experiences and efficient interactions. Search costs decrease as consumers easily compare products and prices on a single platform, while clear processes govern interactions.
For example, Airbnb users are spared having to scour multiple accommodation websites, instead they can easily compare available listings, prices and reviews in one place, thereby enhancing the overall customer experience. The user-friendly interface and standardized processes further minimize the effort required to complete transactions. Hosts can create listings quickly, while guests can easily book their accommodation with just a few clicks. These fast-to-follow steps not only reduce the time involved in making bookings but also contribute to a sense of reliability in the platform.
By leveraging economies of scale and network effects, e-commerce platforms such as Airbnb create a conducive environment for both buyers and sellers to engage in transactions with minimal friction.
Additionally, rating systems and customer feedback are featured to provide valuable insights into the reliability and quality of the offer. As a result, two-sided markets, in theory, play a pivotal role in promoting efficient market exchanges, driving economic growth and expanding opportunities for participants across various sectors.
The strengths of network effects
The real strength of two-sided markets lies in network effects, driven by the number of users. As the user base expands, the platform becomes increasingly valuable for both buyers and sellers. Sellers gain visibility and access to a vast client base, amplifying their reach and potential sales opportunities.
This increased exposure also contributes to the overall vibrancy and diversity of offerings on the platform. Buyers enjoy a diverse array of options and services, ranging from unique products to specialized experiences, as the platform attracts more sellers and service providers.
Moreover, as the number of users grows, so does the volume of interactions and transactions taking place on the platform. This heightened activity makes for a dynamic ecosystem where supply meets demand with greater efficiency, leading to more favorable outcomes for both parties involved.
Furthermore, shared experiences among buyers create a sense of community and trust, enhancing the overall value proposition of the platform. Feedback and recommendations contribute to building a loyal user base and a semblance of reliability that further fuel the network effects.
The paradoxical market structure
Successful two-sided platforms often evolve into monopolies, creating highly competitive environments within. This paradoxical structure, featuring a monopoly at the level of external infrastructure but competitiveness internally, ensures efficiency by allowing users to find all the available options on the same marketplace, without the need to switch between platforms.
A perfectly competitive market is characterized by small-atomistic-agents (consumers and producers), absence of market power (ability to influence the equilibrium price) and perfect information. However, while two-sided platforms strive to emulate the competitive conditions of a perfectly competitive market, one key departure from this ideal exist.
Although two-sided platforms seem to provide users with a lot of information regarding available options and prices, not all that glitters is gold. Besides asymmetries and biases in algorithms or search rankings that slant visibility and favor certain sellers or products over others, information can become rather abstract, hard to verify, and hence, easy to manipulate. With growing Airbnb host groups and lobbies, it's a tough job to define who has the monopoly on transparency.
This lack of clarity distorts market outcomes, inhibiting the free flow of information characteristic of perfect competition.
Professionalization of sellers and transparency issues
Even though platforms like Airbnb were born as marketplaces where sellers operate to increment their income alongside their main occupation, recent trends have seen so-called ‘individual sellers’ transition into full-time professionals. Furthermore, the rise in short-term rental management companies tapping into holiday rentals has altered the Airbnb ecosystem even further. On one hand, this has allowed Airbnb to offer a wider range of accommodation, including luxury options, but the shift brings with it concerns about transparency, as professional sellers and property agents with multiple listings gain power on information dissemination that effects the guest’s decision-making processes.
For example, property agents have been known to invent an individual host’s name to give the listing a more personal, homely touch, thereby disguising the fact that the guest-to-host experience has actually been disrupted. Since a platform like Airbnb had as its initial mission to provide a ‘home from home’ service cutting out the middle person, it is in the interest of the professional seller to camouflage the fact that one cozy home rental has morphed into a fully-fledged agency run with property management software.
The growing presence of professional agents and agencies also introduces complexities in conflict resolution processes, as their professional interests and motivations in many cases differ from those of individual hosts or guests. For example, requesting an extra duvet from an agency-run property is usually more complex than asking the individual host who usually lives nearby. Similarly, highlighting a problem or complaint becomes a more drawn out affair when dealing with an agency due to less personal availability, 9-5 opening hours and time-consuming procedures.
Negative reviews
Another example can be seen in the selective removal of negative reviews, particularly in service-oriented platforms like Airbnb, which raises questions about transparency and reliability of user feedback.
The selective removal of negative reviews on Airbnb has recently emerged as a debatable practice, particularly among super hosts who rely heavily on having immaculate evaluations. Lobbying groups comprised of short-rental providers have started advocating for policies and practices that enable super hosts to protect their reputations from potentially harmful reviews. These groups argue that while constructive feedback is valuable for improvement, some negative reviews may be unjust or unfairly impact a host's reputation.
As a result, they advocate for mechanisms that allow hosts to contest or remove reviews that they deem inaccurate, misleading or in violation of platform guidelines. While Airbnb has policies in place to prevent abuse of the review system, the lobbying efforts of these groups highlight the ongoing tension between maintaining transparency and accountability while also safeguarding the interests of hosts who provide valuable services to the platform.
"Some users have speculated that Airbnb selectively removes negative reviews to protect its top sellers. While the surprisingly ubiquitous online debate about the integrity of Airbnb's reviews often notes that hosts don't have the power to have bad reviews removed, that's not true. Airbnb has a process that allows hosts to appeal negative critiques. I also discovered a robust cottage industry that helps hosts contend with bad reviews. e.g., "Remove Airbnb Reviews - A Superhost's Secret Weapon" and "Bad Airbnb Reviews: How to Turn Them into Your Weapon." The Sydney Morning Herald, Traveller section.
Addressing these challenges requires a reevaluation of platform policies and practices to ensure equitable access to information and fair dispute resolution mechanisms for all participants, regardless of their professional status or level of involvement.
Fairness in pricing
In the realm of two-sided markets, pricing becomes a pivotal element influencing consumer decisions. The notion that higher prices signal higher quality is a common belief, creating a scenario where sellers, particularly those presenting themselves as professionals on platforms like Airbnb, may exploit the informational advantage over the users of the platform to inflate their prices. This raises an important question regarding the platform's role in ensuring fairness in pricing. While allowing the market to determine prices organically has its merits, the risk of potential abuses and the exploitation of consumers' lack of information regarding local rental prices cannot be ignored.
Fairness in pricing is a critical aspect of Airbnb’s current position, especially in the context of fluctuating demand. During events like the Olympic Games or major concerts, short-term rental prices can double, leaving consumers feeling exploited and confused about Airbnb’s original mission (i.e., to be a cheaper alternative to hotels).
From an economic point of view, it is reasonable to increase prices when demand is high; it is not reasonable to keep prices high because the platform is dominated by a few professionals that do not compete with each other.
To strike a balance, Airbnb could consider implementing measures to prevent fictitious fluctuations, such as providing benchmark prices for specific areas. This proactive approach helps establish a fair and competitive pricing framework, fostering trust among users and ensuring that the market operates with transparency and integrity. Ultimately, finding the right equilibrium between market dynamics and user protection is essential for the sustained success of a two-sided platform.
Conflict resolution
In situations where conflicts arise, particularly in service-based transactions like short-term rentals, the lack of robust platform interventions can exacerbate tensions and undermine trust between users and the platform. Occasional users may feel disadvantaged or discouraged from pursuing resolution, especially if they perceive lack of support from the platform and its complicated, time-consuming processes. These dynamics ultimately erode confidence in the platform's ability to protect users' interests.
Airbnb’s handling of user/host problems has met with mixed reviews. This is in part due to the fact that at its essence, Airbnb is a peer-to-peer business model where “both hosts and guests are core players during the complaint and resolution process since they are expected to first attempt to handle the other party’s complaints on their own before reaching out to the platform for support. In such a distinctive business environment, there is a higher likelihood of complaints and resolutions taking place in a more complex manner compared to a conventional B2C model,” explains a research study into complaints and resolutions in P2P businesses.
When intervention from the platform is required, guests’ common concerns include lengthy wait times, lack of transparency, and most commonly, limited enforcement of policies. Users have raised concerns about Airbnb's weak adherence to its policies and standards, particularly regarding issues such as property misrepresentation, fake listings, safety concerns and customer service.
Another study reported “Two themes reflect the sources of distrust: Airbnb's poor customer service and the hosts' unpleasant behavior. The managerial implications are that Airbnb should invest additional resources into minimizing customers' negative experiences by focusing on trust-based relationships and maintaining quality in its core service elements. When customers report their complaints, their concerns should be addressed with prompt apologies, positive actions, and a willingness to compensate these customers to neutralize their distrust in the company.”
Recently, Airbnb has made efforts to improve its community standards and policies, including implementing new listing verification procedures, enhancing customer support services and its resolution center with step-by-step guidance.
Towards a more equitable marketplace
The dual nature of two-sided markets, characterized by their reliance on network effects and market structure, presents both opportunities and challenges in ensuring the integrity and sustainability of these platforms. While network effects drive growth and engagement, they also raise questions about market dominance, competition and fair access to information among participants.
Moreover, the proliferation of professional sellers and agencies on platforms like Airbnb underlines the importance of transparency and accountability in maintaining trust among users. The transition from individual hosts to professional operators introduces complexities in conflict resolution processes that rely more heavily on the platform than on the peer-to-peer relationship.
In confronting these challenges, two-sided e-commerce platforms must prioritize transparency, fairness and effective communication channels to develop trust and ensure the longevity of their relationships with users. By implementing clearer proactive dispute resolution strategies and equitable policies, these popular platforms can survive in a more resilient and fairer digital marketplace.
Content Manager at EHL Hospitality Business School
